Should you dip into your emergency fund to pay off a credit card balance?

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Credit card debt can be costly. But do you have to loot your savings to get rid of them?

Key points

  • You need money in an emergency fund to protect yourself from the vagaries of life.
  • While you may be motivated to pay off credit card debt quickly, think twice about dipping into your emergency savings.

Maybe you ran up a credit card balance because you got hit with a series of unexpected bills that couldn’t be postponed, and your paycheck just couldn’t handle them. Or maybe you spent a little too much on vacation (it happened to the best of us).

No matter why you’re stuck with a balance on your credit cards, you may be eager to pay off that debt. The longer you wear it, the more it will cost you in interest.

If you have money in an emergency fund, you might be tempted to make a withdrawal to cover your existing debt, or at least reduce it. But is it a good idea?

Don’t get left without a cash reserve

The purpose of having an emergency fund is to pay for unexpected expenses that your paycheck cannot cover. If you recently had your house or car repaired and paid for it with your credit card, there’s nothing wrong with dipping into your savings to pay for that expense. That’s what your emergency fund is for.

That said, the only thing you do not do want to do is leave you with little or no money in the bank. If paying off your credit cards means making yourself vulnerable like this, then you better keep your savings intact and come up with a plan to pay off your balance over time.

Say you have an emergency fund of $12,000 and credit card debt of $2,000. If you were to withdraw $2,000, you would still have quite a large cushion to lean on. But if you have $2,000 in credit card debt and only have $2,500 in savings, you’re probably better off not touching your emergency fund.

How to quickly pay off credit card debt

The sooner you get rid of your credit card debt, the sooner you can move on and the less that debt will cost you. One option for getting out of debt faster is to consider a balance transfer. If you have a decent credit score, you may be eligible to transfer your existing credit card balances to a new card with an introductory interest rate of 0%, making it less expensive to pay off.

If you don’t qualify for a balance transfer, you can consider taking out a personal loan, using the proceeds to pay off your credit cards, and then paying off that loan in installments. You could get a much lower interest rate on a personal loan than what your credit cards will charge you.

Either way, however, you will need money to pay off these balances. Reducing spending from your budget could free up some cash, but if you’re very keen to get rid of that debt, you might want to consider temporarily getting a second job. Increasing your income could not only help you pay off your debt, but also shore up your emergency fund so you’re even better prepared for future unexpected bills.

In some cases, it makes sense to dip into emergency savings to pay off a credit card balance. But if you’re going to go this route, be sure to leave yourself with a good amount of money left over. And if that’s not possible, leave your savings alone and come up with a different plan to get rid of your credit card debt for good.

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